Don’t junk the U.S. auto industry
Mr. Ludwig, a former U.S. Comptroller of the Currency, is founder and CEO of¬† consulting firm Promontory Financial Group. Any opinions are his own; GMAC Financial Services is one of Promontory‚Äôs clients.
The economic upheaval wreaking havoc on the global financial system is threatening to claim another victim: the domestic automobile industry and its financing arms.
General Motors Corp. could run out of cash by January without help. Ford Motor Co. and Chrysler LLC also need fast government intervention to stay solvent. Automakers and the UAW are making their case to Congress this week for emergency help. But even the supporters of a $25 billion aid package for the auto industry are dubious about whether they have the votes to pass it.
This raises the question, why not just let them go bankrupt?¬† The domestic auto industry is everyone‚Äôs favorite whipping boy, and its problems have been growing for decades. Some are of its own making; many are circumstantial. But we cannot blithely accept its failure as somehow inevitable or deserved.
Our economy has been badly battered in recent months, and has become increasingly fragile. The erosion of our industrial base already presents real security risks to our nation. Why would we accelerate this sorry state of affairs at a time of national crisis by sitting on our hands and letting a signature American industry collapse?
The American auto industry is well worth saving, for many reasons.¬† One reason is that for the past decade Detroit has made heavy investment and steady progress in improving its competitiveness, what it calls ‚Äúaltering the DNA‚ÄĚ of American cars.¬† US automakers spend $22 billion annually on plants, equipment, research and development. Breakthroughs are at hand in developing alternative fuel propulsion systems, and our national well-being and security depend upon seeing them through to completion.
If we allow U.S. automakers to go under out of anger, resignation, or ideology, it will only mean all the work and investment of the last decade will be ceded to our foreign competitors instead of being plowed back into the U.S. economy.
Another reason is the industry‚Äôs importance to the job market and the wider economy.¬† Automobile manufacturing directly employs a quarter of a million workers and indirectly about one in ten U.S. jobs are related to some degree to the automotive sector, according to GM estimates.¬† So the effects of a collapsed U.S. auto sector would not be limited to Detroit ‚Äď they would be magnified as the ripples spread to related industries.
If we allow U.S. automakers to fail, millions of retirees depending on auto company pensions will be at risk and auto manufacturing jobs will disappear. The ripple effect won’t end there; millions of jobs in related sectors, such as¬† U.S. manufacturers of steel, aluminum, iron, copper, plastics, rubber, electronics, and computer chips, will also feel the pain.
Worse yet, the promise of a meaningful future for American manufacturing would fade. As that promise dims, the role played by manufacturing jobs as a passport to the middle class would likewise disappear.
The auto manufacturers did not cause this crisis; they were working hard to reinvent the quintessential American invention when high oil prices and economic upheaval hit, dragging them into the vortex. There is a tendency to think that an example must be made, that someone must be allowed to fail.¬† But do we really need to cut out of the heart of the real economy? When the patient is in the middle of a full blown coronary, it‚Äôs no time to discuss lifestyle changes.
We can and should revisit subjects like executive pay scales and expense controls when the industry isn’t at death’s door.¬† For now, we should recognize the gravity of the moment, and use the TARP funds and pass necessary auto-related financial stabilization legislation to avoid digging a bigger hole for the national economy.